UK: SME - Be Mr Nasty, nicely.

UK: SME - Be Mr Nasty, nicely. - Making staff redundant should be an action of last resort. But if there's no other option, allocate plenty of time and resources to do it in a responsible way.

by Sarah Perrin.
Last Updated: 31 Aug 2010

Making staff redundant should be an action of last resort. But if there's no other option, allocate plenty of time and resources to do it in a responsible way.

The manner in which a company handles redundancies shapes its future.

Managed badly, remaining staff, customers and suppliers will lose confidence in the business. Handled responsibly, the business can look forward to future growth with a committed workforce.

Making staff redundant should be an action of last resort. 'Our basic advice is, if redundancy can possibly be avoided, don't do it,' says Angela Baron, policy adviser for the Institute of Personnel and Development.

Remaining staff can become insecure, inspiring the most able and marketable to seek jobs elsewhere. Those who stay may become dispirited and less productive, so the ultimate impact of redundancies is far greater than expected. 'If you downsize by 10%, you lose 20% of your capacity,' Baron warns. If there is no other option but to make redundancies, plenty of resources should be allocated for the redundancy process, she advises.

'Give those made redundant as much severance pay, support and counselling as possible.'

Before reaching levels of best practice, however, you must meet basic legal requirements. If 20 or more employees are being laid off, for example, you must tell the Department of Trade and Industry at least 30 days before the first dismissal. You should also consult trade unions or elected employee representatives at least 30 days before the first dismissal if 20-99 staff are being dismissed, and at least 90 days where 100 staff or more are involved. What's more, case law on unfair dismissals makes it clear that consultation is also required individually with any employee selected for redundancy.

'Courts and tribunals expect employers to consult employees with a view to minimising the number of redundancies, and to establish a fair set of criteria for selecting employees,' says Colin Goodier, head of the employment department at solicitors Pinsent Curtis in Birmingham. Consultation has to be meaningful. In group redundancies it must cover a range of issues, such as the reason for the job losses, possible selection criteria for redundancy, the procedure, timescale and any possible ways to avoid or reduce the job losses. Individuals also have the right to consultation on issues such as why they have been selected and possible ways to avoid the redundancy. If you stray in any way from these legal requirements, you could lay yourself open to unfair dismissal claims.

The best way to avoid legal trouble is to seek professional advice.

One of the most conflict-free methods of choosing those to be made redundant is asking for volunteers. The problem with this, however, is that all your most able staff, those who are most confident of finding new work, will be the most likely to apply. Therefore it's probably in your best interests to select staff on criteria that keep the most able and lay off the least productive.

Criteria must be objective and based on measurable factors, such as skills, competencies and qualifications, or disciplinary, performance and attendance records. Any method of selection that could, even inadvertently, lead to accusations of race or sex discrimination must be avoided. 'You could include absences for sickness, but not absences for pregnancy or pregnancy-related illness,' warns Goodier. 'If you do, you will be clobbered by sex discrimination legislation.' Whatever the selection criteria, where possible no one should be selected for redundancy by their immediate line manager since that lays the selection process open to allegations of bias.

It's worth getting the backing of unions or staff representatives for the method. 'If unions are involved in the initial design of competency-based selection, it increases the chance that they will have bought into it,' says Brian Langham, a director of Hays Management Consultants. 'So much of the success or failure of the selection process is down to its perceived credibility or fairness.'

Once staff have been selected for redundancy, you should ensure that they are told the news by their immediate line manager without unnecessary delay. To avoid gossip and rumours, as few people as possible should know which individuals have been selected until those individuals have been told themselves. 'The news should be broken honestly, privately and with a balanced view,' says Alex Cameron, a change management consultant with his own company, Represent. 'It should be done towards the end of the day so that people are not hanging around the office feeling embarrassed.

You also have to have all the facts and don't just explain the decision with a set of opinions. The whole story needs to be available.' If possible, have a human resources manager on hand in another room to explain the severance package in detail.

Redundant employees with two or more years' continuous service are currently entitled to statutory redundancy payments based on age, length of service and average weekly earnings, although your business can offer more generous packages if it wishes. But, while most companies assume that staff are allowed up to £30,000 severance pay tax-free, the law is actually a bit confused on this point, says Mike Warburton, a tax partner at Grant Thornton. In some situations, for example, where a person is made redundant near to retirement age, the sum may become taxable. 'If redundancy is paid and the Inland Revenue then decides it is subject to tax, it's the employer they will go for. They will say the employer should have applied PAYE properly. So it's a good policy to get advance clearance from the PAYE officer that you are correct in applying the £30,000 exemption.'

Being told of redundancy may be so traumatic for some staff that they go into shock. According to Bill Pitcher, chairman of career transition consultancy Cedar International, three common responses are 'flight, fright or fight'. Some staff may want to escape as quickly as possible, others may freeze and some may become aggressive. Because redundancy is an emotional experience, it may be helpful to have trained counsellors available on site to talk to staff after they have been given the news. Counsellors can help deal with fears and anxieties. 'We can help them think about what they will say when they go home,' adds Pitcher.

Once you have told staff that they have been made redundant, how long they stay at work depends on individual circumstance. You may want some to work their full notice period. With others, particularly those with access to confidential data, it may make sense to pay them for their notice period but not require them to work. Disaffected staff could try to sabotage the business in some way, for example, through planting a bug in the computer systems. You should ensure, however, that where employees do work their notice period, they are given time off for interviews. If there are multiple redundancies, it may be worth bringing in a recruitment adviser on site to discuss job opportunities. If you are a medium-sized firm, think about employing outplacement consultants to help staff update their CVs, train them for interviews and provide further counselling and support. 'When an organisation is letting people go, it's important that it is seen to treat them fairly,' says Walter Dodd, director for outplacement experts Drake Beam Morin in the East Midlands. 'It's important for the company's image in the community, with its suppliers and its customers. It's important for the people remaining in the company.'

On each individual's last day at work, the leaver should be left to decide for themselves how to mark it. 'Managing the ending is terribly important,' says Cameron. 'People should be able to define their last day for themselves.

Some people may just want to slide away and not be seen. Others may want some kind of event.'

Redundancies may attract publicity, probably not the welcome kind. The key when responding to enquiries from your staff, customers, suppliers, shareholders and even the press is to explain the business rationale for the job losses. 'You want them to see this as something positive,' says Langham. 'You have to think upfront how to manage these people's expectations and persuade them that you won't reduce the quality of the service.'

Staff who keep their jobs need support, too. Some may feel guilty about avoiding redundancy, a phenomenon known as 'survivor syndrome'. Others will still feel anxious about their own security. You and all the other managers in the business need to keep a prominent profile, to speak confidently about the future of the business and to act sensitively. 'Managers shouldn't issue too many memos,' says Dodd. 'They have to recognise that it's not business as usual. You have to let the organisation do its grieving.'

DO'S AND DON'TS TO EASE THE PAIN OF PARTING

Do

- Consider all the options before laying off staff

- Invest as much time and capital as possible in the redundancy process

- Follow legal requirements

- Explain the company's position as clearly as possible

- Consider giving staff access to trained counsellors

- Give leavers time off to go job hunting

- Work to raise the morale of staff who remain

Don't

- Underestimate the impact of redundancies on staff morale and productivity

- Ignore the need to consult with staff on the redundancy selection process

- Make an outsider break the news

- Deny staff the opportunity to offer solutions that could avoid redundancies

- Hide management away, but make them accessible

- Announce 'jollies' for some staff at the same time as laying off others

- Forget that the company's reputation with employees, suppliers and customers depends on how responsibly it handles the redundancy process.

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